Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Allied Nevada’s Second Quarter Financial and Operating Results Conference Call. At this time, all participants are in a listen-only mode. Following the presentation we will conduct a question-and-answer session and instructions will be provided at that time. (Operator Instructions) I would like to remind everyone that this conference call is being recorded today, Wednesday, August 8, 2012, at 11 am Eastern Time.

I would now like to turn the conference over to Ms. Tracey Thom, Vice President, Investor Relations. Please go ahead.

Tracey Thom

Thanks very much. Good morning. We appreciate everyone for joining us this morning. On the call today is Scott Caldwell, President and CEO; and Steve Jones, Vice President and CFO, to discuss the Q2 financial and operating results that were released last night after market close. The call will be followed by a Q&A session as was mentioned.

Before we begin, please note that certain statements we may make during this call may contain forward-looking information. For additional information, I refer listeners to read the cautionary statements regarding forward-looking information contained in our press releases and on our website, and our second quarter report.

I’ll now turn the call over to, Scott Caldwell.

Scott Caldwell

Thank you, Tracey. Good morning to everybody on the call. Now, let’s be honest, the management’s not real happy with the performance in this quarter. It was disappointing on several metrics. First to me, personally and most importantly we suffered in loss time accidents after over two years of a perfect safety record. It was a minor injury, but still nothing’s more important than the health and safety of any of our ANV employees or stakeholders that are out at site. So we’re very disappointed with that and we’re back on track again on the safety side.

We missed our earnings estimate, our estimates on earnings primarily due to a lack of metal sales. We also had a $3.5 million interest payment associated with the recent debt deal we put together, but again didn’t get the metal produced, didn’t get the metal sold. When I say produced, we weren’t able to sell any carbon.

At the end of quarter, we had over 16,000 ounces of gold on carbon that continues to grow. Our offsite processing that we announced in June, we finally were able to do some operational technical issues, but we finally were able to get 900 ounces sold earlier this month. So, it’s starting to move but much slower than we thought and we’ll talk more about that in a little while on the carbon.

Crusher excavation, one of the thing that hurt us; that is complete, but we moved our mining fleet when we got approval to begin with the crusher and started on that excavation, and there is ore there, and unfortunately the model overestimated recoverable gold by about 15,000 ounces. So, net-net was 15,000 fewer ounces went on the heap over the course of the last three or four months.

On the brighter side, things that are looking good moving forward; environmental performance is excellent and permitting is going phenomenally well. Quite frankly, permitting is outrunning operations in engineering. We have permits to approve to proceed with things that the engineering is lagging behind, so we're really racing with the permitting; so that's going very, very well.

I mentioned the $400 million debt deal and most of you are familiar for that. The cash balance was $577 million at the end of the quarter. And we believe with that associated with our cash flow, we're fully financed to meet our current capital requirements. I'm referring to the mill and the crusher expansion.

Cash costs continue to look good. The new mining equipment comes on line. Our unit costs are declining or trending downward and went down by 15%. So we're very pleased with how that fleets beginning to operate, and it's reflected in our unit cost and our productivities.

The mining equipment fleet right now is essentially for the oxide expansion is all on site. We've got the three large shovels; the Hitachi 5500s and 16 320-haul trucks, and we are focused on advancing all aspects of the expansion to dovetail with the permitting success that we've had.

So mining rate has increased to design levels; 35% more tons being mined in the second quarter than the first quarter, with the final shovel becoming operational. The Lewis pad expansion which was about 3 million square feet is complete and was all being stacked on that and leached and that's been in process during the quarter. Solution flows up to the heap have increased to 8,500 gallons per minute, and so we're really stacking solution now and the grades are increasing to the plant as expected.

Silver production, now continues to see – it impresses me, and it exceeds our expectations, and you see that in ounces of silver sold, ounces of silver produced, and that's again biased downwards because of the carbon columns don't recover a lot of silver, it's about a 1 to 1 ratio in the carbon columns.

Looking forward, we have a plan in place that [silver] selling about 150,000 ounces of gold; 40,000 ounces in Q3 and 70,000 ounces in Q4, and the plan is very achievable. It's not an aggressive plan. It assumes that we're going to be able to process our carbon. On the carbon front, the processing side, the plant that we were saying will be ready in about a year; it now looks like it will be operational in the fourth quarter.

Again, the permit was received, we've advanced the fabrication schedule, it's been fabricated, it's a modular system, it will take about two weeks to commission. It will process five tons of carbon every 72 hours. It allow us to process all the carbon we're loading and will load and also catch up on our inventory. So that plant will be operational in the fourth quarter. Capital cost of that plant was about $2 million or will be about $2 million

Solution, as our pumping rate in our surface area expands with the leach pad, will be up to about 12,000 gallons a minute, so another 33% increase or thereabouts effective in the next few days, we're commissioning up pumping system right now.

Mine grades for the second half of the year, again another permitting success, we'll be moving into the Lewis or what we call the Bay Area. It's some of our best grade oxide material. The grade is 018 so 50% higher than what we've mined for the first half of the year, and when I say 018, that is oxide grade so that's cyanide soluble or recoverable gold and we received our permit, we now can go mine there. We're actually drilling our first production blast as we speak. We drilled over 40 short reverse circulation holes to confirm the resource in that area, just up high in the model; we've had some problems here and there. It looks pretty or looks good. So we're really excited about getting mining on that. The strip ratio on that is zero. So, it's all our – and we'll be mining that this month.

Overall our cost per ounce sold will decrease quarter-over-quarter. It's pretty obvious how that's happening, although our overall spending goes up, because the mining rate goes up and we're processing more ore tons, obviously the ounces sold increased dramatically.

On the growth side of things, and now I'm talking construction, our owner's team has been strengthened, a gentleman by the name of Carl Consalus joined us. He came out of the U.S. coal industry, VP, Project Development, very experienced, large construction projects; multimillion and billion dollar type projects. And we've added a number of other people on the owner's team. Engineering's proceeding well, Fluor, if you recall is doing our detailed engineering.

Crusher and the reclaim, essentially 100% complete and I want to reiterate, when we say engineering, we are issuing drawings for construction, the drawings for all of the crusher reclaim system in particular is at the county right now, county builder inspections and we expect to proceed on that. We'll be pouring concrete on that later this month.

We expect to receive our final approval on the oxide and that's really leach pad expansion and a new Merrill Crowe plant that we should have that allows to construct 16 million feet of additional leach pad. Obviously, we're not going to build it all at once but we have that approval. We expect that in the next few days. So we're off to the races on that. Again, that's ahead of schedule, ahead of plan. We're really excited about receiving those approvals to begin going.

Work on the mill excavation will begin this quarter. This will be a contracted excavation. It's immediately adjacent to the gyratory crusher obviously. The crusher excavation is west of that. It's about 12 million tons of material. Based upon our experience that I mentioned earlier on the crusher excavation where we got burned by the model i.e. about 50% less recoverable ounces, we have assumed no ore in this excavation.

There will be some, we don't know how much, but we've assumed none, zero ounces out of that excavation. So we think we've taken a fairly conservative approach there. The first phase of that excavation is obviously the grinding bay, i.e. the SAG mill location and the ball mill locations, but the entire excavation will be completed in the first quarter of next year, again dovetailing with permitting.

On the construction side, we've committed to – I'll just say a wet concrete agreement with a major batch plant company in the states, same guys that provided the concrete for our truck shop. The unit rate on this depending on how much we commit to and this is not a take-or-pay contract. If we use it, we pay for it. It's substantially less than what we paid for a year ago on the truck shop. So we're really excited about that.

The detailed engineering on the transmission line or the hydro line and the distribution system in the plant was well below the feasibility estimates. When I say well below, it's $20 million below, so that went very, very well.

We've got an arrangement in place for permanent and temporary housing in Winnemucca, we will not have a camp or casino on site. In other words, so this is all offsite. So it's one of the reasons our capital cost is lower than some of the major overseas jobs as we don't have a man camp, if you'd like, on site. We'll bus employees like we do right now to and from work.

The large electric shovels, there has been some – and I suspect this is out of the coal industry cancellation on mining fleets, and we have the power available. We know what we need to do. We've advanced the electric shovels by a full year. That will allow us to optimize our mine plan, and quite frankly, it certainly looks like we'll reduce our overall mining rate associated with the Vortex pre-strip by moving the shovel forward. So we're working on that detailed plan now, but it sure makes a lot of sense to move that forward. It'll reduce our unit cost even further. The cost to operate that electric shovel is about a third of a hydraulic shovel on a per ton basis. So we're really excited about that. And obviously the trucks and the drills and everything else associated with that mining shovel have a bit advanced as well.

Capital expenditures of $285 million in the year, and Steve will talk about that. We've accelerated it and just spoke about the shovels, but we're moving everything to keep pace with the permitting, and as the permitting improves, i.e. we get permits sooner, we're accelerating the, taking advantage of some depressed commodity prices in other areas of the industry to move equipment, engineering, et cetera forward.

So we're really pushing on accelerating the overall project. Again, the target is to commissioning that mill in the second half of 2014 and up to full production in the first quarter of 2015.

To-date, we've committed approximately $452 million of capital or about 36% of the feasibility estimate of $1.2 million and I'm now referring to the mill, if you'd like, and that includes the crushing project; the primary crusher or the gyratory crusher. And that's slightly below the feasibility study estimates. So we're very pleased with where we are right now.

So at risk would be roughly about $800 million, if you want to do the arithmetic; $850 million that we have not committed to. That $452 million does not include the concrete that I mentioned earlier, although we have a firm rate on that. Again, we still believe that we'll have all the approvals to begin construction of the mill in Q1 of 2013 and we're pushing towards that.

Quite frankly, if we're – based on our recent success on the permitting front, we're trying to plan for, if we get them sooner what can we do to advance the construction schedule, (inaudible) we work, whether that'd be an additional manpower or what.

The excavation will be complete at the same time for that first quarter and we have some major met testing ongoing right now, and we're seeing very exciting results in it at the end of the year. So, in the fourth quarter we're going to have a little met update, and what it is, is we are running pilot plant work up in BC on our concentrates – producing more and more concentrate, looking at things like finer ultimate grind size; those sorts of things, but we're seeing some real exciting results coming out of that and we'll give you all an update in the fourth quarter.

Exploration; not a lot of money being spent on exploration, and Steve will talk to the budget for the rest of the year. Hycroft exploration; really the workout there has been engineering. I won't call it exploration as such. When I say engineering, its geotech, mine planning holes that I mentioned at the Bay Area, and also condemnation drilling.

We intend to move to regional targets on the Hycroft land package late in third or early in the fourth quarter. Access is no problem in the winter months down there and again our focus on those are some anomalies that have been identified by geochem/radmetric work and we're going to test those targets later in the year.

Outside exploration our real focus is expanding resources. We're focusing on oxide heap leach, so relatively modest capital cost if you want to compare to a big mill. Wildcat, we're doing resource confirmation, i.e. confirming some of the historic drilling that was done out there and resource expansion. Based upon the data that we've got available right now, i.e. old drilling, sampling et cetera and what we see is the potential, of course our drilling will confirm that.

Management has a target, so we believe it's a very realistic target to have a total resource of approaching 3 million ounces and we'll be talking to that, ready to announce that in late first or early second quarter of next year.

The other project that we're drilling on now is Hasbrouck/Three Hills. Again, resource expansion in that area, our target based upon what we're seeing, what we have seen is something around 2 million ounces in the total resources space and again, we'll be talking to that late first quarter or early second quarter of next year. The drilling's going well. Again, it's a modest exploration, wide spaced drilling. We are not trying to drill for proving a probable, we are gathering additional met samples, and we're really focussing on oxide material, i.e., low capital cost deployment if you were to proceed with these projects.

With that as a little bit of an update, I'll turn the call over to Steve Jones and Steve is going to update you on the financial et cetera for the quarter.

Stephen Jones

Thank you, Scott. What I'd like to do is as Scott indicated is just go through the financial highlights starting with the balance sheet. Scott mentioned we ended the quarter with $577 million reflective of our C$400 million senior note offering that we did at the end of May. Those were swapped to a $400.4 million offering with an 8.385% coupon.

You will see in the financial statements, the impact of that derivative and the impact specifically on the accounting. Obviously, I'm happy to answer any specific questions, but the easiest way to maybe summarize it is to just say that through the income statement, you'll see 8.375% on the $400.4 million.

Scott mentioned that we did increase our inventory in process during the quarter, increased by $15.7 million from the end of the first quarter and if you go to our Footnote 3, you'll see that it breaks out inventories. The 16,300 ounces of carbon that Scott mentioned and then also we've got 36,200 ounces in solution.

We did, in the first quarter for the first time, begin a little stockpiling of some transitional and sulfide ore at a cost of about $6.4 million. That's recorded as a long-term asset and you can see that broken out in Footnote 4. We do expect to process that once the mill is up and running, hence the reason for it being a long-term and not a current asset.

The other asset account at June 30, our non-current is $22.8 million. The details of that are put in [05]. But if you look at that, it’s primarily two items, the unamortized portion of the debt issuance cost, which is $13.3 million at June 30, and an advance payment for equipment of $7.3 million. We talked about that in the first quarter. That’s an advance payment on these electric rope shovels, and as Scott indicated, those have now been pulled forward. So we will expect to make some additional payments between now and the end of calendar year 2012 for those shovels.

Overall, our capital leased balance is $77.3 million. That’s both the current and non-current portion of capital leases. During the quarter, we added $28.6 million in capital leases. We added one Hitachi 5500 shovel, four of the Komatsu 930E 320-ton trucks, and one Cat D11 Dozer.

Now if we move to the income statement, you’ll note that revenues were $33.7 million during the quarter, roughly the same as prior year quarter. Overall, gold revenues were actually down $1.9 million, and that’s as a result of lower gold sales. We sold 17,762 ounces during the quarter. That compares to a prior year quarter of 20,300 ounces, and our first quarter of 20,300 ounces. As Scott mentioned, we sold no gold on carbon during the quarter. Had we sold gold on carbon equivalent to either of those prior quarters, we certainly would have sold it more this quarter than we’ve been had in those prior quarters. Our average sales price for the quarter was $1,609 an ounce, right at the average of the spot market during the quarter.

On silver, Scott mentioned, we’re continuing to see significant amounts of silver. We had a record quarter. We sold 174,736 ounces at $29 an ounce. That compares to the prior year quarter of just over 85,000 ounces, and that compares to our first quarter of 2012 of 128,000 ounces. That’s silver to gold ratio at 9.8 to 1. So, we’re continuing to see significant amounts of silver, which is obviously the result of some of the additional cyanide and lime that we’re using and we’re definitely getting the results for that.

Overall, our adjusted cash costs per ounce were $527,000 that compares to $531,000 in the first quarter of this year, and $459,000 from the quarter a year-ago. We did mine in the quarter. Scott referenced it in some high waste zones. Our strip ratio was 1.1 to 1. And if you compare that to the prior year, strip ratio, it was 0.7 to 1. Also I just mentioned the fact that we’ve added more lime in cyanide; significant amounts compared to the prior year quarter, actually 75% higher volumes in the prior year.

We did see in June, a 15% drop in our mining costs with the addition of the third 5500 Hitachi shovel. At the end of June, we had added four of the big 930E, 320-ton trucks. Those were in the dirt by the end of the second quarter, as Scott referenced, we've now added five more between June 30 and today, such that we've got 16 of the big trucks and 6 of the smaller 200-ton trucks. So we did see in June, the impact of the big shovel and a few of those trucks, we would expect our per unit cost to continue to drop.

However, I will offer just one word of caution that if you look at our inventory currently, we do have higher per ounce cost in inventory that we need to work our way through and if you go to footnote 3 and 4, you can do the math and see exactly what we have on a per ounce basis.

Overall we do expect our adjusted cash cost for the year to be less than $500 an ounce, but if you break it up between quarters, you’re looking to – the third quarter's going to look more similar to what we've shown in the first two quarters and then the fourth quarter, you're going to see a significant deduction as we work our way through that inventory and you get the full benefit of the efficiencies with the larger equipment.

We did not do a lot of exploration work during the quarter, an expense of $1.2 million, but as Scott talked to you about, we do have additional exploration planned in the second half of the year, Hasbrouck, Wildcat, the regional Hycroft and we would expect to see roughly an additional $5 million in exploration expense in those areas.

You do see the interest expense hitting the income statement from our senior notes. Just a note, that is net of what is capitalized for construction in progress and obviously as we continue to ramp up the project, you'll see more of that being capitalized going forward.

Overall, our effective tax rate is 25% less than the statutory rate because of the percentage depletion deduction, and if you look at both the prior year quarter and our first quarter, you'll note that we had effective tax rate at 25% in those quarters as well. Overall, net income was $6.1 million or $0.07 a share.

Now, if we go to the cash flow statement, and I'll say from a CFO perspective, probably the most disappointing number to me is the fact that we had a utilization of $8.3 million from operations. That compares to the cash generation of operations of $4 million in the prior year quarter. The reason that we had a utilization is primarily due to the increase in inventories and the stockpiles that we've already discussed and we would certainly expect to be generating cash flow from operations for the remainder of 2012 and forward.

Our investing activities do reflect all the progress that Scott talked about on the expansion. Specifically, we spent $40.9 million during the quarter. That includes $3.2 million on the Lewis leach pad, $5.4 million on mine development, $12.5 million on the mill expansion, which includes the engineering work that was discussed, some progress payments on the mills themselves and then some consulting and environmental work on the mill expansion.

We spent $8.7 million excavating the gyratory crusher during the quarter, $2.4 million on the north pad and $1 million on the process water pipeline. You'll also note at the bottom of the cash flow statement, the $28.6 million in capital leases, which from an accounting standpoint is shown as a non-cash item gold figure, but that additional amount was added to our property, plant and equipment during the year.

As Scott mentioned, our target capital for the year is $285 million. By moving things like the rope shovels up earlier, we're moving the trucks up. We're not changing our overall estimate. But we are looking to actually spend the dollars sooner, and therefore get the benefits of – particular on the equipment side, get those benefits sooner, and be able to advance all the work that's ongoing out there.

Finally, cash flows from financing activities. Obviously, you'll see the $40.4 million in the senior notes. You'll see the total debt issuance cost of $13.2 million, and then we did repay $3.1 million in capital leases during the quarter.

So with that as a financial overview, I will turn it back to Scott and I'm sure we'll open it up for questions.

Scott Caldwell

Thanks, Steve. As Steve mentioned, yeah, we will now try to answer any questions you may have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from George Caffrey from GMP Securities. Please to ahead.

Zachary Zolnierz – GMP Securities

Hi this is Zachary Zolnierz calling in for George, thanks for taking my questions guys. So I guess my first question is, the 150,000 ounces in sales for the year that you guys are now projecting. Does that include the 16,000 to 17,000 ounces of gold on carbon?

Scott Caldwell

Yeah, it does include carbon sales, and so yeah, key to that number is we’ve got to execute on the carbon sales side. Part of that obviously, our plant is now although not at site yet, will be arriving in September. We think we’ll have a commission in October. It’s a real simple plant. It’s a batch plant, five tons every 72 hours of atmospheric strip carbon. So part of that is that where we can strip our own carbon.

We still have the arrangement with Yukon Nevada, and finally we’re successful in getting about 900 tons process there just recently – 900 ounces, sorry, about 10 tons of carbon, 900 ounces and recoverable or payable. And so between the two, we think we can get the 16,000 ounce inventory. However, at the end of the year, we will still have ounces on carbon because we’ll continue to load carbon, and as our grades are improving, more and more ounces get deposited on carbon. So at the end of the year, we’ll still have an inventory on carbon. So, we will not be at a zero inventory in carbon at year’s end.

Zachary Zolnierz – GMP Securities

So adding on that question, when we look to reach the gap between the 180 and 150, is there a way we can think about that between the carbon that won’t be sold and then the solution stacking or is that 30,000, is that related more to the solution stacking?

Scott Caldwell

It will be a combination of the two solutions stacking. But we’ll get that gold. It will be in carbon sludge in part solution. But we should start to see that gap close in the first quarter of 2013. Obviously, we aren’t releasing it on ‘13 yet, that’s when we see that coming out. In carbon, our plant, again, it will do 10 tons a week, if you'd like; five tons every 72 hours. So, 10 tons of carbon a week and not only will it process all we produced, it will allow us to catch up over a period of time, 180 day period and then we'd be caught up and so we'd be able to stay current at month-to-month if you like, week-to-week on the carbon production. Ultimately our goal is to shutdown the carbon columns, but you won't see that towards the end of 2013 or early 2014.

Zachary Zolnierz – GMP Securities

Great. And so my second question is in regards to recovery rates in the quarter. Could you comment on how they were pacing and maybe where they're pacing today?

Scott Caldwell

Yeah, recovery is still – and I'll just talk to the Brimstone because, well over 99% – close to 100% of our ore has been Brimstone today, we talked a little bit about the crusher excavation, but it really was only 15,000 recoverable ounces placed, but yeah, recovery is still 56.6 plus, we look at 80% of those ounces coming out in the first year and then 20% thereafter. So, you get the bulk of your recoverable gold in the first year and we monitor that. We now have, I don't know – 40 million tons under leach and so we're pretty comfortable with that recovery.

We're now moving into, as I mentioned earlier in the conversation the Bay Area and that ore, we've got a lot of test work done on that both historically, they mined and processed a number of tons. So, we're pretty comfortable with the recovery there. It's slightly lower than Brimstone, but today, we're still seeing kinetics and recoveries as expected. So we see it in our solution (inaudible), we see it in the ore that we're sampling as it goes on the pad.

Just on the point of reconciliations, as we're talking about it, if you look at project to-date, gold reconciliation, the model has under predicted recoverable gold or contained gold however you want to talk about it by 3%, so really spot on. So that's blast ore versus model or exploration or the oil reserve model.

Silver, on the other hand, we are obviously underestimating silver in our exploration model. We're still working on that to see what that variance is, but we are underestimating silver. We know that for a fact, and what it is, is we have, we were mining, and it's going to quite frankly continue. We see a bunch of high grade silver, they mined them historically at Silver Camel, they're narrow. They're less than a meter in width and when you're drilling exploration holes, 20 meters, 30 meters apart. The chances of drilling one of those vertical structures is nil and quite frankly if we do hit one, we discount it. We've lowered the grade, we throw it out of the model. And so we're seeing these in the field and that's where we're underestimating silver grade and we're trying to come up with the best technical solution on how to model that in a long-term basis. We don't have any answer as of today.

Zach Zolnierz – GMP Securities

That’s very helpful, appreciate it. So I guess my final question. Just in the past you guys had talked about upsizing the revolver, just wondering if there's any update there.

Scott Caldwell

Steve?

Stephen Jones

Yeah, Zach. We are working on that and we are looking to grow it from 30 million to 100 million and I would expect that sometime between now and the end of the year, certainly we would have an announcement to that effect.

Hi, good morning everyone. Just following-up, the Merrill Crowe, what's the timeline for the expansion there and do you there'd be any sort of disruption to the Merrill Crowe, when you do have to do the expansion?

Scott Caldwell

No, the Merrill Crowe, I call it an expansion. It's a new plant, it's a large plant and it really is a totally new plant whether you continue running the old one or just run the new one, we’d have the operation flexibility to run both. So the old plant, as it exist today 5,000 GPM, we’ll continue to run. The new plant will be built and commissioned.

We hope to begin construction on that before the end of the year. We’re getting ready to order of long lead items built to presses. And when we really want to have – when we need to have that plant is this first half of next year, so we’re in really good shape i.e. the south leach pad comes on line. This is the same Merrill Crowe plant that is in the mill capital estimates. So it’s one and the same. So in other words, when the mill is running, this plant would have a high grade circuit as well. So, it’s the same plant and we’ll build it modular, just add presses as the mill comes on line. So we hope to begin construction before the end of the year on that.

Sam Crittenden – RBC Capital Markets

And what’s the capacity of that, and then if you ran the old plant as well, would you be able to stop using carbon?

Scott Caldwell

Yes, and that’s the current thinking is exactly that. That plant will be up to 20,000 gallons at the new one.

Sam Crittenden – RBC Capital Markets

Okay.

Scott Caldwell

And then the old one is 5,000 and then you’d shutdown the carbon columns, quite frankly, the carbon is really effective on low-grade solutions. So as your low grades drop, you’d probably be running the carbon out there. But we really would like to get away from and we’re Merrill Crowe guys now, right.

When we want that silver, the silver recovery, Steve talked about the ratio of over 9 to 1 right now ounces of silver per ounce of gold. Don’t forget, carbon is 1 to 1. So we’re being artificially biased. We know it, we know that we’re putting silver back in solution whenever we’re running across the carbon columns. And so, we really would like to get that silver out right now. So, anyway…

Sam Crittenden – RBC Capital Markets

And then another question I had, this high-grade oxide zone in the Bay Area. Do you know the approximate tonnage of that? Are you able to provide that?

Scott Caldwell

Yeah, I don’t have the number in front of me, but certainly Tracey and Sam will call you as soon as the call is over with the exact number. Certainly the ore reserve, I just don’t have the tech report. Yes, we do know the tonnage, and that short infill program if you’d like, high-density, RC program confirmed that tonnage. Unfortunately, it’s not in the hundreds of millions of tons. But we’ve been solvating mine in the stuff for two years now and actually did not believe that we would have approval until next year. We’ve got it, we’ve started.

Sam Crittenden – RBC Capital Markets

So do you think like, is it something you’d be mining for a quarter two or into next year or like…?

Scott Caldwell

It will go into next year.

Sam Crittenden – RBC Capital Markets

Okay.

Scott Caldwell

It will be a year or more, but not 10 years.

Sam Crittenden – RBC Capital Markets

Got it, thank you.

Scott Caldwell

We’ll get you the exact tonnage.

Sam Crittenden – RBC Capital Markets

That’s very helpful. Another question I had on the mill, I’m just curious sort of what percentage of detailed engineering you’ve done now and then, if one side sort of work has been completed, is there a timeframe of when you might come out with sort of a refined capital estimate on the mill?

Scott Caldwell

Yes. First on the refined capital costs estimate, if indeed and we see no major changes to the capital cost estimate. Everything we’ve done so far is slightly under, but let’s just call it on plan or on the feasibility study estimate. We’re going to have an estimate out in the first quarter of next year. As far as engineering goes, it depends where we are in the circuit. Overall engineering is probably 35% done, but in some areas where the big dollars are, such as the grinding base. I’m talking the SAG mills and the ball mills is much, much higher than that. The gyratory crushers obviously, I’ll call it 95% or a 100%, because we’re handing drawings to the county for approval to build, so they can’t change.

So, it just depends where we’re at and maybe off-line, Tracey and I can go through or if anyone is interested, we can go through over the various components. But our focus is on what we consider critical path on the construction schedule and on the capital cost deployment is the grinding bay, right, in other words that’s the big bucks in this thing and that’s where our real focus is as far as engineering goes and the emphasis there less on flotation or thickening if you like right now have limited power on the engineering side, although it’s ramped up significantly. and we’re really seeing a lot of engineering get done, but I worry about engineering, I worry about how you would bid some of the stuff, but it’s starting to come together a lot better.

Scott, you mentioned some numbers there, just to review if you don’t mind, the pumping capacity of the mine, currently 8,500 gallons per minute and when was that, I remember that was increased, was it not last year, if you can refresh your memory as to when that was increased. and then your next level of pumping capacity, I think you mentioned it here on the call today?

but that increases to 12,000, we’re commissioning a fresh water line now, today and yesterday we started and as soon as that line is commissioned, the pumps are commissioned, we’ll be up to 12,000 gallons per minute. We have the surface area. We have the leach lines laid. So the second that the fresh water is available, we’ll increase our level in the ponds. We’ll pump for a couple of days, and then bang, we’re up to 12,000. and obviously it’s all about surface area and solution stacking and it’s part of how we improve our grades dramatically over the next six months and then we’ll hold them there until the new plants running and then we’re going to bump it again, right?

Steven Butler – Canaccord Genuity

Yeah. What was it last year, Scott? Was it increased last year at some point to the 8,500 level?

Scott Caldwell

Yeah. we went up late last year. In a couple of stages, we got up over 6,000. Earlier this year we got up to the 9,000 or 8,500 coming back, 9,500, 8,500 coming back and sorry to talk, GPM, I should move this to metric tons or liters. So the next expansion is this 12,000 and then as the new Merrill Crowe plant comes online, we would bump it again and we'll get more surface area i.e. the south of each pad. We will bump it to 20,000.

Steven Butler – Canaccord Genuity

So when we're talking about the second Merrill Crowe plant and as you say some time or ideally hoping that you can steady state production equaling sales for the most part with pretty small variances. Obviously timing is always a part of it, Scott but by the end of next year, you're hoping you'd be at a point where sales is pretty much comparable to production?

Scott Caldwell

Yes. It will get better and better every quarter as we go by, either the gap will narrow, carbon being part of that, the (indiscernible) expansion I didn't mention part recall at the Merrill Crowe, that we're expanding our retort capacity. That is underway right now. All the components are onsite, I'm talking of a mercury retort. So that's obviously taking place right now. That construction has started.

We obviously have the one that we're building now, the 2 million one. We intend to on the carbon side because of silver recovery, at least the way our carbon kilns operate, we don't have the capacity to move to advanced carbon fast enough to capture silver. You can use carbon for silver recovery Derek does it, everybody does it all over the world. With Merrill Crowe, it works best on our solutions.

So we intend to get away from carbon, because we're not getting the silver. In other words, if you look at the gold to silver ratio on carbon, it’s right around 1:1. So, in other words, we make an ounce of gold. We make an ounce of silver as opposed to the 9 or 10 or 12 to 1 that we’re seeing in the Merrill Crowe plant. So if we can get that that same water going through Merrill Crowe. right now, we want the gold and silver running them. But if we can get the silver at Merrill Crowe plant, we want that silver. So, it will help our overall cost performance i.e., silver is going to go up just by the chemistry. So that’s why we would like to get away from carbon when we can.

Steven Butler – Canaccord Genuity

And Scott, as you go into the second half, and obviously, you say your plan is totally comfortable and totally doable, you obviously have some catching up to do in the second half versus the first half. But is it all a combination of the factors you mentioned based on page one of your press release and they equally contribute to anything more particular than the others? I mean grade is grade, but you got to get those ounces on the pad. So, is it equal contribution from all those factors?

Scott Caldwell

Yeah, it is equal. Probably, fairly equal, the most significant is going to be the solution grade increase. In other words and we’re seeing that in the field now. It’s slowly creeping up as we stack the solution. So, it’s starting to behave the way we think it will behave. The way it’s behaved in the past when we stacked solutions, the way it behaved when Vista stacked solutions up to 1998. So, we’re starting to see the grades of the solutions go up, hence the grade of your feed to your plants are going up. But if I was to weight it, it would probably be 60% solution grades, 40% the other two, equal between the grade of the Bay Area, and ounces placed if you like or tons mined.

Hi there, just with some of the efficiencies that are being gained from the bigger mining equipment, just wondered what the cost per ton might be getting to sort of the exit rate for the quarter?

Tracey Thom

So, yes, Shawn looking at May versus June for instance, we saw a little over 15% decrease in costs. So May was about $1.72 mining cost per ton where June we saw around $1.52 and we’ve seen decreases again in July as the additional trucks have come online.

Scott Caldwell

Our target at the budgeted fuel price, which was associated with roughly $100 per barrel, not West Taxes or [Iraq] price is $1.53. and so we’re right at that level today, if you’d like, and that's 153 per short ton mined, not metric ton. So if you want to turn with the metric add 10%.

Shawn Campbell – Macquarie Capital Markets

Okay, that sounds good. And then I guess just a follow-up question to Steve regarding the ore on leach pads. He was pointing out that the cost per ton is going up. I was quickly doing the math. So the cost per ton at December was around 825, the cost per ton – or sorry, cost per ounce was about 875, the cost has gone up to about 1,000 in the ore on leach pads. When that gets processed, obviously that’s a total cost and includes non-cash, but what would you expect your cash cost to be for finishing and completing the processing of those ounces?

Stephen Jones

Well, I talked for the cash costs. I think the cash costs in the third quarter will be pretty comparable to what we’ve seen in the first two quarters. So just one, I mean when you calculate cost per ounce of gold, which is what we show in the footnotes. It doesn’t include silver right. So, I don't expect to see a big change. The reason I said a word of caution is, we are projecting that our cash cost for the year are going to be less than $500 an ounce and I didn't want to show those costs at – I didn't want people to think that we were going to immediately go to those costs.

And so as you pointed out, Shawn, we've worked our way up a little bit on the inventory and as we wind through that inventory, we're going to be adding a lot of lower cost to it, July going forward but, to answer your question, the number I expect our cost per ounce in the third quarter to be pretty comparable to what we've shown in the first two.

Good morning, gentlemen and Tracey. Quick question on the CapEx. Could you give some guidance as to how the CapEx will be spent to the remainder of the year, just sort of splitting between the two quarters?

Scott Caldwell

Yes, we can. We're looking at the piece of paper right now.

Tracey Thom

Yes, so Tara looking at Q2, I apologize – doing some quick math here. Q2 will be on order of…

Scott Caldwell

Or was on order…

Tracey Thom

Q3 would be on order of approximately $80 million or so, just above $80 million. And then obviously Q4 will be the balance about $80 million or $90 million.

Tara Hassan – National Bank Financial

Okay. And touching back on all the recovery discussion and sort of what you mentioned earlier with the increase in lime and cyanide on the pads. What was the biggest driver of that? Scott, you mentioned that recoveries have sort of stayed stable. Has it had an increasing – what you’ll be putting on the pads or because of recovery challenges in the quarter?

Scott Caldwell

Could you repeat the question? I’m not sure I understood it.

Tara Hassan – National Bank Financial

There’s a comment in the MD&A that cyanide and lime cost increased in the quarter to address recoveries. So just wondering, what that was…?

Scott Caldwell

If you look at the cyanide consumption, it’s slightly higher. We’re seeing slightly higher cyanide consumption and we measure the residual cyanide coming off the heap, when you monitor that, and if that drops too low, you add more cyanide. A lot of that is because we’re going after the silver. We continue to see our silver recovery improve.

Again, everybody is aware. We have no historic silver data. It’s only our data. And so we’re still hitting areas of the leach that based on our original assumptions of 4 to 1 silver to gold ratio, you wouldn’t be leaching it with cyanide anymore. So, we continue to add cyanide and we’re looking at silver that the silver price if you like on this thing.

Hoping that Tara in another few months, six months, we’ll have our first true silver columns done i.e. running now for two years, so we can then talk to what we believe silver recovery really is. But it certainly looks like it’s higher than what we originally anticipated, which was around 10%.

So, silver is a big issue on the increased cyanide consumption. Lime is just pH controls. We mine more tons and we move into some of the different areas. Lime is one of our highest costs right now and lime consumption is higher on a per ton basis than what we anticipated. It was probably 25% to 30% higher depending on the zone. I'm talking cost per ton. Lime pricing is spot on. We haven't seen an escalation on pricing, its consumptions.

Tara Hassan – National Bank Financial

Just touching on the guidance for the remainder of the year, can you give a bit of color on sort of what you're forecasting in terms of tonnage and grades and the unit cost? I know you were saying getting done to $1.53 to get to your 180,000 ounce produced.

Scott Caldwell

Yeah, roughly – I'll start with tons mined and this would be combined ore and waste, but the strip ratio obviously declines dramatically from the 1:1. So it's basically – we're going to place roughly about 7 million to 8 million tons of ore – excuse me, I'm talking quarters, not months. But if you look at it, we're going to go from about 1 million tons a month to 3 million tons a month. So call it 9 million tons of ore on a corresponding 9 million tons of waste a month. That's on average. But the second half of the year we really it's all ore, there's very little waste movement planned, and so we're looking at – our mining rate is going to be 200,000 tons a day or roughly 6 million to 7 million tons a month. This is what we're experiencing right now.

Essentially all ore for the rest of the year; there will be some waste obviously. The contract – it doesn't include contract mining. The contractor is focused on the crusher excavation and that's a 12 million, 11 million ton excavation. We're assuming no ore out of that excavation. That’s a capital program, but we’re not doing that. We’re going to avoid that bid here shortly. So, your unit costs are coming down, because the rates gone up. If you look month-over-month or quarter-over-quarter, it’s essentially now where design rates, which is three times where we were 12 months ago as far as ore tons mined and waste tons mined.

Tara Hassan – National Bank Financial

Okay. And then in terms of the 50% higher grade, is it safe to assume got throughout both Q3 and Q4 or ramping up?

Scott Caldwell

Yes, yes. We believe we’re going to be in that area, we would believe and I’m going to get that exact number, we’ll provide it to everyone on the call, it’s in the ore reserve, but I don’t have it in front of me. But we’re going to be in the Bay Area for the rest of this year, and essentially we’ll continue to mine there. And we’re mining two main areas for the rest of the year, Bay Area and Brimstone. And we’re in the sweet spot of Brimstone again, so the grade comes up there. but Bay Area is the new area with a real good, it’s the best grade we’re going to mine at that 0.18, 0.12.

Tara Hassan – National Bank Financial

And just on the silver grades at Bay, are you expecting that you could see similar surprises on the grade there as well?

Scott Caldwell

Yes. The same veining again, I’ll recap just briefly. These high-grade narrow veins; again, they are meter wide, not tens of meters wide and it’s difficult to hit them with blast holes. And when I say high-grade, when these are mined historically, they’re several hundred grams per ton. We, in our long-term forecasting model or ore reserve model, we cap silver grade; we knock it down. Essentially we ignore these very, very high grade intercepts. And we’re seeing it in the field now, and yes, you see the same veins in the Bay Area.

Occasionally, we’ll hit them with a blast hole, but usually we don’t. and so even the blast holes are struggling to reflect what’s happening out there with these narrow veins. But it’s an interesting dilemma. It’s certainly a positive surprise that a couple of geologists predicted were going to happen in our house, but yeah, so we see the same thing in the Bay Area. We see it basically from north to south and there’s just limited data on it and we’re trying to figure out the best way to handle it on a long-term basis going forward.

Tara Hassan – National Bank Financial

Okay, thank you.

Operator

There are no further questions at this time. Please continue.

Scott Caldwell

Well, in conclusion, as I mentioned at the start of this, management and the Board is certainly not ecstatic about the quarter we had. We are all stakeholders, meaning management and insiders, we still own just under 15% of the outstanding shares of the company and recognize the importance of earnings and sales or sales hence earnings, I’m talking metal sales here, and particularly gold sales.

So we recognize the need for that. We have a realistic plan, it’s an achievable plan to dramatically improve our sales of metal, both gold and silver. Steve talked about that and I talked about it, 150,000 ounces for the year and we’re working on mechanisms to close the gap to reduce that inventory.

Permitting and construction of the crusher and mill are proceeding well as Tracey mentions and I’ve mentioned quite frankly, permitting is outpacing operations/construction at this stage of the game, which is good news. and so we’re pursuing all options to accelerate mining equipment engineering/procurement to build this thing to keep pace with our permitting.

We’re focused on the short-term, but really our eye is always on the long-term and the price here is to get this mill up and running and go from a couple of hundred thousand ounce producer or in sales of gold in a million in silver to a million gold equivalent if you want to talk to and we’re really focused on that project.

So far the capital cost is looking very good with 452 million committed, which is about 36% and those are firm commitments, so locked in if you’d like. We see no reason to say that the $1.2 million is going to be blown out, but the at-risk dollars is being diminished every day. It’s now really it’s 750 or thereabouts. It was 800 a few weeks ago. So, it’s looking pretty good. Rough quarter, we’ve got a plan to fix the rest of the year. And certainly, the construction is proceeding slightly ahead of schedule and permitting is way ahead of schedule, which is good news.

Stephen Jones

Yeah.

Scott Caldwell

Anyway, with that, thanks for spending part of your day with us. I know you’re real busy this time of the year. and if you have any more questions, give Tracey, Steve or I a call and we’d be glad to talk to you in detail.

Operator

Ladies and gentlemen, this concludes the conference call for today. Thanks for participating. You may now disconnect your lines.

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